Fitch Rates Colorado Regional Transp Dist Sales Tax Revs 'AA-'; Upgr Outstanding Debt.

SAN FRANCISCO -- Fitch rates the Regional Transportation District, Colorado's (RTD) initial offering of $600 million sales tax revenue bonds (FasTracks Project) series 2006A 'AA-'. The bonds will be sold through negotiation by a syndicate led by UBS Investment Bank on or about Oct. 2. The Rating Outlook is Stable. Public Financial Management serves as the district's financial advisor.

Also, Fitch upgrades the following related RTD issues:

--$361.3 million outstanding sales tax revenue bonds (senior sales tax revenue bonds) to 'AA' from 'A+';

--$344.4 million outstanding certificates of participation (COPs) to 'A+' from 'A'.

The Rating Outlook for these issues also is Stable.

The 'AA-' rating for the new series 2006A sales tax revenue bonds (FasTracks bonds) reflects strong debt service coverage by RTD's sales tax pledge, a flexible capital plan, a high additional bonds test, and RTD's overall strong underlying credit fundamentals. The upgrade for the senior sales tax bonds results from the closing of these bonds' senior lien on RTD's initial 0.6% sales tax. Fitch's upgrade for the outstanding COPs reflects the enhanced operating flexibility presented by the voter-approved sales tax increase, RTD's demonstrated ability to manage a sizable capital program, and projections that show sustained satisfactory financial operations despite a system expansion. The COPs rating also reflects a sound legal structure and strong incentive to pay since a significant share of the transit vehicles are financed through these leases.

In addition to strong debt service coverage by sales tax revenues despite declines a few years ago, RTD's other positive credit features include the economic base's sound underpinnings, effective utilization of debt instruments, and a willingness to increase fares. These actions partially offset the system's low farebox recovery ratio and pattern of over-estimated sales tax performance. RTD will continue to be an active debt issuer, following on its recent activity to finance the sizable Southeast Corridor rail line, which will open next month. Fitch's ratings also consider the uncertainty inherent with the implementation of a substantial transit network expansion.

The new issue is RTD's first sale of a $3.477 billion authorization approved by voters in November 2004. Litigation challenging the tax was resolved in the district's favor in June 2006. The bonds are secured by a first lien on a new 0.4% sales and use tax and a subordinate lien on the remainder of the 0.6% sales and use tax after debt service on outstanding senior sales tax revenue bonds and commercial paper is paid. Debt service coverage for this issue is very high and remains strong when the district's planned additional $2 billion in bonds are included. RTD expects to issue the additional debt from 2009-2013. Fitch views RTD's financing plan for this $4.7 billion project as incorporating sufficient flexibility to safeguard bondholders in the event of weaker tax performance.

Debt service for these bonds is covered 5.3 times (x) by the 0.4% tax receipts in 2005, and 12.2x when the junior lien on the 0.6% tax revenue is included. Projected maximum annual debt service once all bonds are sold, $189.2 million, is expected to be covered 1.4x by the 0.4% tax alone in 2014, the year first incurred, and 3.3x by the full tax pledge. Revenue projections are somewhat liberal, expecting annual sales tax growth from 5.0%-6.2% per year. Nonetheless, coverage levels remain satisfactory when stressed for slower growth, and at least 1.0x coverage is sustained at 2% average annual growth. The bonds are protected by a strong 2.0x additional bonds test.

With this sale, RTD is closing the lien on the senior sales tax revenue bonds, preventing any dilution of the high debt service coverage for this issue. Maximum annual debt service for these bonds is covered 6.2x by 2005 tax collections. Coverage remains high when debt service on outstanding COPs and commercial paper is included.

RTD's sales tax collections have exhibited sound growth, although recent years have exhibited volatility. Growth averages 6.2% per year over the long run (since 1992) and a still good 5.4% from 2003-2005. However, collections declined 6.3% from 2001-2003 and rose only 0.2% in 2001. The tax is collected over a large and diverse area that includes Denver and much of its suburban surroundings. Estimates for 2006 foresee a 4.9% gain. Fitch notes RTD's history of incorporating optimistic sales tax projections in its planning and budgeting. However, the concern is partially offset by management's monitoring of sales tax collections and effective actions taken to retain budgetary balance in response to recognized shortfall. Measures taken in recent years include delaying or eliminating capital projects, making service adjustments, and restructuring fares.

RTD has a low farebox recovery rate, relying instead on excess sales tax revenue to cover operating costs. On average the farebox ratio has met RTD's stated 20% goal, which is below national averages. The Jan. 1, 2006 fare restructurings, which included a 20% local fare increase and continued operating cost containment measures -- including a state requirement to use private contractors for 50% of RTD's service, should act to increase this figure. Ridership trends are strong recently, and growth continues in 2006 despite a 20% local fare increase on Jan 1, 2006 and limited operations during a one week strike in April. Better than expected ridership and fare revenue so far this year may be due in part to rising gasoline prices.

The district provides primarily bus service and 15.8 miles of rail. The Southeast Corridor project will add 19 rail miles with its opening in November. The FasTracks program calls for a major system expansion over 12 years, including 119 miles of new rail lines, 18 miles of bus rapid transit infrastructure, additional parking and stations, and improvements to Denver's Union Station. RTD expects to finance the program through a combination of sales tax bonds, certificates of participation, pay-as-you-go spending, and a federal Transportation Infrastucture Finance and Innovation Act loan. Fitch positively views RTD's track record in managing large scale capital projects given its experience constructing the light rail system. While RTD's goal is to deliver the FasTracks program by 2017, it retains flexibility to adjust and stage the implementation of system elements in the event of higher than expected project costs and/or lower than expected available funding.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.